What is asset protection?
Asset protection is the term used to describe the process of making sure that your assets pass to whoever you would ultimately like to receive them. Asset protection is an important consideration for many people who wish to pass on assets to family, friends or charities during their lifetime as well as in the event of their death.
Why is asset protection important?
Often people are concerned that their money and assets might be used in ways that do not correspond with their wishes, rather than being transferred to loved ones. Common concerns which our clients raise include:
- Their assets being used to pay for care home fees in the event that they require residential care in the future;
- Their assets being used to meet Inheritance Tax liability in the event of their death; and
- Their assets being passed to certain family members or the government in the event of their death rather than to their favoured individuals or charities.
What can I do to mitigate against these risks?
Some clients wish to make transfers during their lifetimes in order to protect their assets. These can include transferring the title to a property into their children’s names, setting up a trust and transferring assets into it and/or making cash gifts to family members or friends.
When considering options for asset protection during your lifetime, there are various factors that should be taken into account and proper advice should be obtained so that you are aware of the risks involved and can make an informed decision regarding your estate planning. You should consider issues such as loss of control of the assets in question, tax considerations and cost of care rules. The following are particularly important to bear in mind:
- ‘Deprivation of capital’ rules. If you may require local authority funding to assist with the cost of your care in the future and have previously gifted an asset away (such as your house), if the local authority believes you did that in order to limit what you pay towards the cost of your own care, they are likely to treat that as a ‘deprivation of capital’. The local authority may then have certain remedies to try and recover the asset to use to fund your care;
- Inheritance tax – the rules regarding Inheritance tax are complex but as a general rule, if you make a gift during your lifetime, you must survive a period of seven years after the date of the gift in order for the asset to have successfully been removed from your estate for Inheritance tax purposes. Additionally, you cannot continue to ‘benefit’ from the asset; otherwise it may still be treated as part of your estate for inheritance tax.
What about my Will?
Putting a will in place and ensuring it is up to date is also a vitally important as part of your asset protection planning. A will ensures, amongst other things, that the people you want are in charge of handling the administration of your estate and that the assets which you own at the time of your death ultimately pass to the family, friends or charities of your choosing. A will can also be supported by a ‘letter of wishes’ which offers non-binding guidance to your executors as to how your estate should be administered.
There is a lot to consider with regard to asset protection either via lifetime transfers or making provision in your will. You should take professional advice to ensure that you are fully informed in order to make the best decisions for you and your loved ones.
To learn more about asset protection, please feel free to get in touch
DISCLAIMER
The content of this page is for information only. It is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Gibson Kerr Ltd accepts no responsibility for the content of any third party website to which this webpage refers. Gibson Kerr Ltd is regulated by the Law Society of Scotland.